{"id":110261,"date":"2026-06-28T10:12:43","date_gmt":"2026-06-28T04:42:43","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=110261"},"modified":"2026-06-28T12:19:58","modified_gmt":"2026-06-28T06:49:58","slug":"eu-carbon-border-adjustment","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/eu-carbon-border-adjustment\/","title":{"rendered":"EU Carbon Border Adjustment Mechanism &#8211; Explained"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><strong>Carbon Border Adjustment Latest News<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Government of India is reportedly preparing a scheme to bear <\/span><b>90% of the compliance cost<\/b><span style=\"font-weight: 400;\"> incurred by MSMEs exporting to the European Union under the <\/span><b>Carbon Border Adjustment Mechanism (CBAM)<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Carbon Border Adjustment Mechanism (CBAM)<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The <\/span><b>Carbon Border Adjustment Mechanism <\/b><span style=\"font-weight: 400;\">is a carbon pricing mechanism introduced by the <\/span><b>European Union (EU)<\/b><span style=\"font-weight: 400;\"> to prevent <\/span><b>carbon leakage<\/b><span style=\"font-weight: 400;\">, the relocation of carbon-intensive industries to countries with less stringent climate regulations.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Under CBAM, importers of certain goods into the EU must purchase <\/span><b>CBAM certificates<\/b><span style=\"font-weight: 400;\"> corresponding to the embedded carbon emissions generated during the production of those goods.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The mechanism aims to ensure that imported products face a carbon cost similar to that imposed on producers within the EU under the <\/span><b>EU <a href=\"https:\/\/vajiramandravi.com\/current-affairs\/emissions-trading-scheme\/\" target=\"_blank\">Emissions Trading System<\/a> (EU ETS)<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The <\/span><b>transitional phase<\/b><span style=\"font-weight: 400;\"> of CBAM began in <\/span><b>October 2023<\/b><span style=\"font-weight: 400;\">, focusing on emissions reporting, while the <\/span><b>financial obligations came into effect from January 1, 2026<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">CBAM currently applies to carbon-intensive products such as:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Iron and steel, Aluminium, Cement, Fertilisers, Electricity and Hydrogen<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The scope is expected to expand gradually to include additional sectors.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>How CBAM Works<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Exporters selling covered products to the EU must report the <\/span><b>embedded emissions<\/b><span style=\"font-weight: 400;\"> generated during production.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">These emissions include:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Direct emissions from manufacturing processes<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Indirect emissions from electricity consumption (for specified sectors such as cement and fertilisers)<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">EU importers are required to purchase CBAM certificates based on these verified emissions.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">If exporters fail to provide actual emissions data, the European Commission applies <\/span><b>default emission values<\/b><span style=\"font-weight: 400;\">, which are subject to progressively increasing <\/span><b>mark-ups<\/b><span style=\"font-weight: 400;\">:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">10% in 2026\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">20% in 2027\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">30% from 2028 onwards\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">These higher default values significantly increase compliance costs and reduce the competitiveness of exporters unable to accurately measure and report emissions.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Challenges for Indian MSMEs<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Although CBAM is often viewed as a carbon tax, experts note that the <\/span><b>largest burden for MSMEs is compliance rather than taxation<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To comply with the regulation, exporters must establish systems for:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Carbon accounting<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Emissions measurement and monitoring<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Third-party verification<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Digital reporting<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Data management and documentation<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">According to industry estimates, <\/span><b>each MSME may incur compliance costs of Rs. 15-20 lakh<\/b><span style=\"font-weight: 400;\"> merely to meet CBAM reporting requirements.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Unlike large corporations, MSMEs often lack:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Technical expertise<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Financial resources<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Dedicated sustainability teams<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Digital infrastructure for emissions reporting<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Since many of these expenses are <\/span><b>fixed costs<\/b><span style=\"font-weight: 400;\">, they do not decrease with lower production or export volumes, placing smaller exporters at a competitive disadvantage.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Government&#8217;s Proposed Support Scheme<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Recognising the disproportionate burden on small exporters, the Central Government is working on a scheme to <\/span><b>reimburse 90% of CBAM compliance costs<\/b><span style=\"font-weight: 400;\"> for eligible MSMEs. The proposed support is intended to help exporters:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Develop carbon accounting systems<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Obtain third-party verification<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Build reporting infrastructure\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Continue accessing European markets<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The initiative follows unsuccessful attempts by India to secure special concessions for small industries during negotiations with developed countries.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Impact on Indian Exports<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">India is the <\/span><b>world&#8217;s second-largest producer of crude steel and primary aluminium<\/b><span style=\"font-weight: 400;\">, making CBAM particularly significant for the country&#8217;s manufacturing sector.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">According to a recent <\/span><b>Indian Council for Research on International Economic Relations (ICRIER)<\/b><span style=\"font-weight: 400;\"> working paper:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Iron and steel exports to the EU could decline by nearly 24%, making it the most affected sector.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">India&#8217;s overall global exports of iron and steel may decline by 5.7%.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Fertilisers, aluminium, and fabricated metal products are also expected to face substantial impacts.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The report further notes that while CBAM is likely to adversely affect India&#8217;s exports to the EU, its impact on global carbon emissions is expected to be <\/span><b>limited<\/b><span style=\"font-weight: 400;\">, as emission reductions will depend on the technologies and production processes adopted by exporting countries.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Implications for India<\/strong><\/h2>\n<ul>\n<li><span style=\"font-weight: 400;\">CBAM presents both challenges and opportunities for India&#8217;s manufacturing sector.<\/span><\/li>\n<li aria-level=\"1\"><b>Economic Challenges<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Increased compliance costs for exporters<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Reduced competitiveness of MSMEs in European markets<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Pressure on labour-intensive export sectors<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Additional burden due to the UK&#8217;s proposed CBAM from <\/span><b>2027<\/b><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\"><b>Strategic Opportunities<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Adopt cleaner production technologies<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Improve energy efficiency<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Strengthen carbon accounting systems<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Enhance global competitiveness through sustainable manufacturing<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The mechanism may also accelerate India&#8217;s transition towards low-carbon industrial production, particularly as global markets increasingly prioritise environmental standards.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Way Forward<\/strong><\/h2>\n<ul>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To minimise the impact of CBAM, India should adopt a comprehensive strategy by:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Providing financial assistance for MSME compliance<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Expanding technical support for carbon accounting and emissions reporting<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Strengthening domestic carbon measurement and verification infrastructure<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Encouraging the adoption of cleaner production technologies through targeted incentives<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Continuing bilateral negotiations with the EU to address concerns of developing countries while ensuring market access for Indian exporters<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Such measures would help Indian industries remain competitive while aligning with global climate commitments.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <strong><a href=\"https:\/\/indianexpress.com\/article\/business\/eu-carbon-tax-government-to-shoulder-90-per-cent-compliance-bill-of-msmes-10760822\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The EU&#8217;s Carbon Border Adjustment Mechanism is raising compliance costs for Indian exporters, prompting support for MSMEs.<\/p>\n","protected":false},"author":21,"featured_media":110267,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[8363,60,59,8362],"class_list":{"0":"post-110261","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-carbon-border-adjustment","9":"tag-mains-articles","10":"tag-upsc-mains-current-affairs-tag","11":"tag-uspc-current-affairs","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/110261","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/21"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=110261"}],"version-history":[{"count":3,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/110261\/revisions"}],"predecessor-version":[{"id":110266,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/110261\/revisions\/110266"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/110267"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=110261"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=110261"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=110261"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}